STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

August 6, 2002 8/22/2002

Agenda ID #952

TO: PARTIES OF RECORD IN RULEMAKING 01-10-024

Enclosed are the proposed decision of Administrative Law Judge (ALJ) Walwyn and the proposed alternate decision of Commissioner Lynch. They will be on the Commission's agenda at the meeting on August 22, 2002. The Commission may act then, or it may postpone action until later.

When the Commission acts on the proposed decisions, it may adopt all or part of them as written, amend or modify them, or set them aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

In setting the briefing schedule on July 2, 2002, the ALJ asked parties to address if they would stipulate to shortening the time for review of the proposed decision pursuant to Section 311(g)(2). Several parties stated their support for this in their briefs; no party opposed the request. Parties will have another opportunity to address this issue in their oral argument before the Commission on August 8, 2002. We will consider the silence of a party on the issue to imply consent. If no objections are raised to the Commission shortening time for public review of the proposed decision at the oral argument, comments will be due on August 19, 2002, and the decisions will be placed on the August 22, 2002 Commission agenda.

/s/ CAROL BROWN

Carol Brown, Interim Chief

Administrative Law Judge

CAB:sid

Enclosures

ALJ/CMW/sid DRAFT 8/22/2002 8/8/2002

Agenda ID #952

Decision PROPOSED DECISION OF ALJ WALWYN (Mailed 8/6/2002)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking to Establish Policies and Cost Recovery Mechanisms for Generation Procurement and Renewable Resource Development.

Rulemaking 01-10-024 (Filed October 25, 2001)

(See Appendix A for a list of appearances.)

TABLE OF CONTENTS

Title Page

INTERIM OPINION 2

I. Summary 2

II. Procedural Background 3

III. Edison's May 6^th Motion 5

A. Request 5

B. Applicability to PG&E and SDG&E 9

C. Should DWR Contract Allocation Be Completed First? 10

D. What Types of Products Should Be Authorized and in
What Amounts? 11

1. Parties' Positions 11

2. Discussion 13

a) Establishing a Procurement Limit 13

b) Product Types 19

E. Procedural Process 22

1. What is Being Requested? 22

2. What Has the Commission Previously Done? 25

3. What is Required Now? 27

IV. Should the Commission Reinstitute Standard Offer 1 Contracts and Adopt a Right of First Refusal for Qualifying Facilities? 39

A. The Statutory and Regulatory Framework Governing PURPA 39

1. Federal Law 39

2. State Law 41

B. Analysis of the CCC Proposals 44

1. The Proposal to Require IOUs to Offer SO1 Contracts to QFs With a Design Capacity of More Than 100 Kilowatts 44

2. The Proposal to Provide QFs With an ROFR 48

V. Procurement of Renewables During the Transitional Period 56

A. Authorized Interim Steps 57

1. All-Source Solicitation With Preference for Renewables 57

2. Determining the Least Cost/Best Fit 59

3. Securing the Existing Base of Renewable Generation 61

B. The Role of Public Goods Charge Funds in Renewable Procurement 63

C. Bridging the Gap to AB 57 and the Full Procurement Plans 64

VI. Shortening the Public Review Period of the Proposed Decision 64

Findings of Fact 64

Conclusions of Law 70

INTERIM ORDER 71

APPENDIX A - List of Appearances

APPENDIX B - Edison's Proposed Advice Letter and

Commission Advice Letter Process

APPENDIX C - Procurement Contract Review Process

APPENDIX D - Adopted Master Data Request

INTERIM OPINION

I. Summary

The question before the Commission in this interim decision is the extent to which, if at all, the respondent utilities should be permitted to immediately contract for a portion of their residual net short (RNS) in partnership with the California Department of Water Resources (DWR).¹

In this decision, we authorize the respondent utilities to enter contracts in participation with DWR between the effective date of this decision and January 1, 2003. Because the RNS forecasts of each utility show a need for energy in 2003 in only a small number of peak hours, together with the uncertainty attached to these forecasts due to the pending status of DWR contract allocation and renegotiation, we are conservative in the amount and type of transitional authority we grant.²

We adopt a procedural process to review and approve these contracts. This process provides the utilities with an opportunity for an expedited decision that resolves reasonableness issues, while ensuring effective Commission oversight.

We also address the procurement of renewables in this transition period, assuring that our grant of contracting authority here does not harm our ability to include renewables in a final procurement plan.

Finally, we address the request of gas-fired cogeneration companies for qualifying facilities (QFs) to be given preference in the solicitation process for legal and policy reasons.